<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From: To:
----------- -------------
Commission File No.: 0-9233
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
(Exact name of registrant as specified in its charter)
State or other Jurisdiction of I.R.S. Employer
Incorporation or Organization: Delaware Identification No.: 54-0856778
4050 Legato Road
Fairfax, Virginia 22033
(Address of principal executive office)
Registrant's Telephone No., Including Area Code: (703) 267-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- ---------
As of July 25, 1997, 41,409,494 shares of common stock were outstanding.
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I Financial Information
---------------------
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . 12
Part II Other Information
-----------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 12
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
The information furnished in the accompanying Consolidated
Statements of Operations, Consolidated Revenues by Market, Consolidated Balance
Sheets, and Consolidated Statements of Cash Flows reflects all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results of operations and financial condition for the interim periods. The
accompanying financial statements and notes thereto should be read in
conjunction with the financial statements and notes for the year ended December
31, 1996, included in the American Management Systems, Incorporated (the
"Company" or "AMS") Annual Report on Form 10-K (File No. 0-9233) filed with the
Securities and Exchange Commission on March 28, 1997.
1
<PAGE> 4
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions except per share data)
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . $220.9 $188.8 $417.2 $370.2
EXPENSES
Client Project Expenses . . . . . . . . . . . . . . . . 129.5 115.4 242.8 224.9
Other Operating Expenses . . . . . . . . . . . . . . . . 64.7 46.3 125.4 95.9
Corporate Expenses . . . . . . . . . . . . . . . . . . . 12.1 12.1 24.3 22.9
----- ------ ------ ------
206.3 173.8 392.5 343.7
INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . 14.6 15.0 24.7 26.5
OTHER (INCOME) EXPENSE
Interest Expense . . . . . . . . . . . . . . . . . . . . 1.7 0.8 3.0 1.4
Other (Income) Expense . . . . . . . . . . . . . . . . . (0.4) (0.1) (1.4) (0.6)
------ ------ ------ ------
1.3 0.7 1.6 0.8
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . 13.3 14.3 23.1 25.7
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 6.0 9.5 10.8
------ ------ ------ ------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.9 $ 8.3 $ 13.6 $ 14.9
====== ====== ====== ======
WEIGHTED AVERAGE SHARES AND EQUIVALENTS . . . . . . . . . . . . 42.4 42.0 42.2 41.8
====== ====== ====== ======
NET INCOME PER SHARE . . . . . . . . . . . . . . . . . . . . . $ 0.18 $ 0.20 $ 0.32 $ 0.36
====== ====== ====== ======
</TABLE>
2
<PAGE> 5
American Management Systems, Incorporated
CONSOLIDATED REVENUES BY MARKET
Unaudited
(In millions)
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Telecommunications Firms . . . . . . . . . . . . . . . . $ 75.1 $ 69.7 $134.0 $138.1
Financial Services Institutions . . . . . . . . . . . . 54.1 44.7 105.9 85.8
State and Local Governments and Education . . . . . . . 42.5 33.1 76.8 64.3
Federal Government Agencies . . . . . . . . . . . . . . 43.4 30.2 84.0 59.6
Other Corporate Clients . . . . . . . . . . . . . . . . 5.8 11.1 16.5 22.4
------ ------ ------ ------
Total Revenues . . . . . . . . . . . . . . . . . . . . . $220.9 $188.8 $417.2 $370.2
====== ====== ====== ======
</TABLE>
3
<PAGE> 6
American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
(In millions except per share data)
<TABLE>
<CAPTION>
6/30/97
ASSETS (Unaudited) 12/31/96
----------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . $ 38.2 $ 62.8
Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . 257.2 247.7
Prepaid Expenses and Other Current Assets . . . . . . . . . . . . . . 8.8 13.3
------ ------
304.2 323.8
FIXED ASSETS
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.0 62.0
Furniture and Fixtures . . . . . . . . . . . . . . . . . . . . . . . . 20.3 18.4
Leasehold Improvements . . . . . . . . . . . . . . . . . . . . . . . . 12.0 10.7
------ ------
98.3 91.1
Accumulated Depreciation and Amortization (51.1) (43.1)
------ ------
47.2 48.0
OTHER ASSETS
Purchased and Developed Computer Software (Net of Accumulated
Amortization of $54,900,000 and $50,500,000) . . . . . . . . . . . 49.0 40.2
Intangibles (Net of Accumulated Amortization of $2,800,000 and
$2,600,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 6.3
Other Assets (Net of Accumulated Amortization of $800,000 and
$15,700,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.7 5.9
------ ------
68.0 52.4
------ ------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $419.4 $424.2
====== ======
</TABLE>
4
<PAGE> 7
American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
(In millions except per share data)
<TABLE>
<CAPTION>
6/30/97
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 12/31/96
----------- --------
<S> <C> <C>
CURRENT LIABILITIES
Notes Payable and Capitalized Lease Obligations . . . . . . . . . . . $ 61.1 $ 53.5
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.9 19.6
Accrued Incentive Compensation . . . . . . . . . . . . . . . . . . . . 5.9 36.1
Other Accrued Compensation and Related Items . . . . . . . . . . . . . 31.4 32.3
Deferred Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 23.5 20.6
Other Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . . 2.0 2.7
Provision for Contract Losses . . . . . . . . . . . . . . . . . . . . 3.1 18.5
Income Taxes Payable . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 7.8
------ ------
144.5 191.1
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . 12.0 7.7
------ ------
156.5 198.8
NONCURRENT LIABILITIES
Notes Payable and Capitalized Lease Obligations . . . . . . . . . . . 30.3 13.7
Other Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . . 8.5 1.4
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . 7.2 7.2
------ ------
46.0 22.3
------ ------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202.5 221.1
STOCKHOLDERS' EQUITY
Preferred Stock ($0.10 Par Value; 4,000,000 Shares Authorized,
None Issued or Outstanding)
Common Stock ($0.01 Par Value; 100,000,000 Shares Authorized,
49,960,164 and 49,598,673 Issued and 41,389,288 and 40,939,209
Outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.5
Capital in Excess of Par Value . . . . . . . . . . . . . . . . . . . . 77.7 75.0
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 170.9 157.3
Currency Translation Adjustment . . . . . . . . . . . . . . . . . . . (5.8) (1.1)
Common Stock in Treasury, at Cost (8,570,876 and 8,659,464 Shares) . . (26.4) (28.6)
------ ------
216.9 203.1
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . $419.4 $424.2
====== ======
</TABLE>
5
<PAGE> 8
American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1997 1996
------ -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13.6 $ 14.9
Adjustments to Reconcile Net Income to Net
Cash Used by Operating Activities:
Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . 17.1 20.0
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 4.4
Provision for Doubtful Accounts . . . . . . . . . . . . . . . . . . . . 2.6 1.0
Changes in Assets and Liabilities:
Increase in Trade Receivables . . . . . . . . . . . . . . . . . . . (12.1) (55.6)
Decrease (Increase) in Prepaid Expenses and Other Current Assets . . 4.4 (2.5)
Increase in Other Assets . . . . . . . . . . . . . . . . . . . . . (7.6) (4.9)
Decrease in Accrued Incentive Compensation . . . . . . . . . . . . . (28.0) (8.0)
(Decrease) Increase in Accounts Payable, Other Accrued
Compensation, and Other Accrued Liabilities . . . . . . . . . . . (15.4) 0.3
Increase (Decrease) in Deferred Revenue . . . . . . . . . . . . . . 2.9 (0.4)
Decrease in Income Taxes Payable . . . . . . . . . . . . . . . . . . (4.3) (2.3)
------- -------
Net Cash Used by Operating Activities . . . . . . . . . . . . . . . . . (22.5) (33.1)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . . (8.4) (10.6)
Purchase of Computer Software and Investment in Software Products . . . . . (16.4) (8.5)
Decrease in Other Investments . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.4
Proceeds from Sale of Fixed Assets and Purchased Computer Software . . . . . 0.2 0.4
------- -------
Net Cash Used by Investing Activities . . . . . . . . . . . . . . . . . (24.1) (18.3)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.5 28.7
Payments on Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.4) (3.4)
Proceeds from Common Stock Options Exercised . . . . . . . . . . . . . . . . 2.7 3.7
Payments to Acquire Treasury Stock . . . . . . . . . . . . . . . . . . . . . (0.1) -
------- -------
Net Cash Provided by Financing Activities . . . . . . . . . . . . . . . 26.7 29.0
Increase in Currency Translation Adjustment . . . . . . . . . . . . . . . . (4.7) (0.2)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . (24.6) (22.6)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . 62.8 35.8
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 38.2 $ 13.2
======= =======
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
Treasury Stock Utilized to Satisfy Accrued Incentive Compensation
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.3 $ 3.4
</TABLE>
6
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the
percentage of revenues of major items in the Consolidated Statements of
Operations and the percentage of change in such items from period to period,
excluding percentage changes in de minimus dollar amounts.
<TABLE>
<CAPTION>
Percentage of
Total Revenues Period-to-Period Change
-------------- -----------------------------------
Quarter Ended Quarter Ended Six Months Ended
June 30, June 30, 1997 June 30, 1997
vs. vs.
1997 1996 June 30, 1996 June 30, 1996
-------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . 100.0% 100.0% 17.0% 12.7%
Expenses
Client Project Expenses . . . . . . . . 58.6 61.2 12.2 8.0
Other Operating Expenses . . . . . . . . 29.3 24.5 39.7 30.8
Corporate Expenses . . . . . . . . . . . 5.5 6.4 0.0 6.1
----- -----
Total . . . . . . . . . . . . . . . . . 93.4 92.1 18.7 14.2
Income from Operations . . . . . . . . . . . 6.6 7.9 (2.7) (6.8)
Other (Income) Expense . . . . . . . . . . . 0.6 0.4 - -
Income Before Income Taxes . . . . . . . . . 6.0 7.5 (7.0) (10.1)
Income Taxes . . . . . . . . . . . . . . . . 2.4 3.1 (10.0) (12.0)
Net Income . . . . . . . . . . . . . . . . . 3.6 4.4 (4.8) (8.7)
Weighted Average Shares and Equivalents . . . - - 0.9 0.9
Net Income per Share . . . . . . . . . . . . - - (10.0) (11.1)
</TABLE>
7
<PAGE> 10
RESULTS OF OPERATIONS (continued)
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") contains certain forward-looking statements. In addition,
the Company or its representatives from time to time may make, or may have
made, certain forward-looking statements, orally or in writing, including,
without limitation, any such statements made in this MD&A, press releases, or
any such statements made, or to be made, in the MD&A contained in other filings
with the Securities and Exchange Commission. The Company wishes to ensure that
such forward-looking statements are accompanied by meaningful cautionary
statements so as to ensure, to the fullest extent possible, the protections of
the safe harbor established by the Private Securities Litigation Reform Act of
1995. Accordingly, such forward-looking statements made by, or on behalf of,
the Company are qualified in their entirety by reference to, and are
accompanied by, the discussion herein of important factors that could cause the
Company's actual results to differ materially from those projected in such
forward-looking documents.
REVENUES
Revenues increased 17% during the second quarter and 13% for the first
six months of 1997, compared to the same 1996 periods, with second quarter
growth occurring in all of the Company's target markets, except the Other
Corporate Clients market. For the first six months of 1997, growth occurred in
all target markets except the Telecommunication Firms and the Other Corporate
Client markets.
Business with non-US clients increased 8% (to $73.7 million) during
the second quarter and 1% (to $133.7 million) for the first six months of 1997,
compared to the same 1996 periods. The low rate of increase was primarily due
to the suspension of work on a non-US telecommunications systems project, as
previously disclosed. All other business with non-US clients increased 35% and
28% during the second quarter and first six months, respectively.
In the Telecommunications Firms market, revenues increased only 8% in
the second quarter and decreased 3% for the first six months, compared to the
1996 periods, owing to the above-cited suspension. Revenues from all other
telecommunication clients increased 34% in the second quarter and 20% for the
first half of 1997, when compared to 1996. Non-US revenues in this market
increased 3% for the quarter and declined 7% for the first half, compared to
the prior periods. Excluding the effects of the above cited non-US contract,
non-US revenues in this market increased 38% in the second quarter and 26% for
the first half of 1997. Business in this market is characterized by very large
projects with relatively few clients. For all of 1997, the Company expects
the annual growth in this market will be below that for 1996 and below the
Company's overall growth rate, reflecting the impact of reduced revenues from
the non-US project. The Company is continuing work on one release of the major
non-US systems project referred to above, however, there continue to be
significant uncertainties relating to this project.
In the Financial Services Institutions target market, 1997 revenues in
the second quarter and first half, increased 21% and 23%, respectively, when
compared to the 1996 periods, owing to build-ups in business with clients who
started large projects in 1996, and start-up work on several new contracts
awarded during the first half of 1997. Business with non-US clients accounted
for approximately 35% of the second quarter revenues in this market ($19
million) and 32% of the six months revenues ($34 million). For all of 1997,
the Company expects revenue growth in this market to increase in line with the
Company's overall revenue growth.
8
<PAGE> 11
In the State and Local Governments and Education target market,
revenues increased 28% in the second quarter and 19% for the first half of
1997. The increases for both 1997 periods were attributable to continued work
with state taxation departments and several new engagements for financial and
revenue systems. The Company expects revenues in the State and Local
Governments and Education market to increase in 1997 at rates somewhat higher
than the increase in the Company's overall revenues.
Revenues in the Federal Government Agencies target market increased
44% during the second quarter, and 41% during the first half of 1997, compared
to the first quarter of 1996. This increase was attributable to increased
business with existing clients and new business with both defense and civilian
agencies. The Company expects revenues in this target market, for all of
1997, to increase at rates greater than the overall growth rate of the Company,
owing in part to the award of a significant contract with the Department of
Defense.
Revenues from Other Corporate Clients decreased 48% during the second
quarter and 26% for the first half, compared to 1996. The decrease in
revenues, specifically in the second quarter, was due in part to a
reclassification of 1997 first quarter revenues to the other target markets.
Absent that reclassification, second quarter revenues would have decreased 20%.
The Company has made a conscious decision to focus business in the health care
market and the electric and gas utilities market.
EXPENSES
Client project expenses and other operating expenses together
increased 20% during the second quarter and 15% for the first half of 1997,
generally in line with the revenue growth rate. For all of 1997, the Company
anticipates that these expenses will continue to grow in proportion to revenue
growth. During the first half, and continuing throughout 1997, the Company is
making significant expenditures related to research and development as it
produces the next generation of software to be used in its telecommunications
business. A significant portion of these expenditures are being capitalized.
Corporate Expenses were flat during the second quarter and increased
6% for the first half, when compared to the 1996 periods. The reduced rate of
growth in these expenses reflects the Company's focus on controlling these
expenses along with reductions in corporate level performance-based incentive
compensation.
INCOME FROM OPERATIONS
Income from operations decreased 3% for the second quarter and 7% for
the first six months of 1997. A principal factor in the decrease was the
significant amount of management and staff resources that have been consumed
working on the non-US telecommunications client project, at break-even rates.
The Company expects to show increases in income from operations for the
remainder of the year, and the year as a whole.
OTHER (INCOME) EXPENSE
Interest expense increased 113% during the second quarter and
increased 114% during the first half of 1997, because of additional long-term
debt incurred by the Company during the first quarter 1997 and increases in
short-term borrowing to finance the growth of the Company's accounts
receivable. Other income increased 300% in the second quarter and 133% for the
first half of 1997, compared to 1996, due primarily to a refund of property
taxes.
9
<PAGE> 12
FOREIGN CURRENCY EXCHANGE
Approximately 32% of the Company's first half revenues were derived
from non-US business. The Company's practice is to negotiate contracts in the
same currency in which the predominant expenses are incurred, thereby
mitigating the exposure to foreign currency exchange fluctuations. It is not
possible to accomplish this in all cases, and the Company does take some risk
that profits and stockholders' equity will be affected by foreign currency
exchange fluctuations. However, these risks are mitigated to the extent the
Company: 1) successfully negotiates short-term contracts (one year or less), or
2) negotiates provisions that allow pricing adjustments related to currency
fluctuations. To date, the Company has not engaged in any hedging activities
relating to foreign currency exchange fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
The Company provides for its operating cash requirements primarily
through funds generated from operations, and secondarily from bank borrowings,
which provide for cash and currency management with respect to the short-term
impact of certain cyclical uses such as annual payments of incentive
compensation as well as to some degree financing of accounts receivable. At
June 30, 1997, the Company's cash and cash equivalents totaled $38.2 million,
down from $62.8 million at the end of 1996. Cash used in operating activities
was $22.5 million, due primarily to payments made in the first quarter for
incentive compensation and other employee benefits, and to a lesser extent,
continued delays in collecting accounts receivable related to subcontract work
with a prime contractor in the child support enforcement business and a
receivable from a foreign government experiencing continued cash flow problems.
The Company received a large payment during the second quarter related to the
subcontract work in the child enforcement business, but there remain
uncertainties regarding timely collection of the balance of such receivables.
The Company invested over $24.8 million in fixed assets and software
purchases, and computer software development during the first half of 1997.
Revolving line of credit borrowings during the first half of 1997 increased by
$7.5 million over year-end 1996, which borrowings consisted entirely of foreign
currency borrowings by the Company's non-US subsidiaries, all of which
borrowings remained outstanding at June 30, 1997. Additionally, the Company
borrowed $20 million under the term loan provisions of its new $100 million
syndicated debt facility. During the first half, the Company made
approximately $3.3 million in installment payments of principal on outstanding
debt owed to banks; the Company also received approximately $2.6 million during
the period from the exercise of stock options.
At June 30, 1997, the Company's debt-equity ratio, as measured by
total liabilities divided by stockholders' equity, was 0.93, down from 1.09 at
December 31, 1996.
The Company's material unused source of liquidity at the end of the
second quarter 1997 consisted of approximately $26 million under the new
revolving credit facility. The Company believes that its liquidity needs can
be met from the various sources described above.
NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share", was issued by the Financial Accounting Standards Board in
February 1997. The effective date of SFAS No. 128 is for periods ending after
December 15, 1997 and early adoption is not permitted. The Company will
implement SFAS No. 128 during the quarter and year ended December 31, 1997 and
management does not expect this pronouncement to have a material impact on
Earnings per Share.
10
<PAGE> 13
ASSUMPTIONS UNDERLYING CERTAIN FORWARD-LOOKING
STATEMENTS AND
FACTORS THAT MAY AFFECT FUTURE RESULTS
In the next few years, the Company expects growth in revenues to be at
the Company's historical long-term rates and not at the exceptional rates
posted in recent years. The more controlled and lower growth in revenues
should enable the Company to improve its profit margins. These margins were
reduced during the last two years owing to heavy investment in building up
staff capacity and infrastructure, and the stress of absorbing many new
professional staff. Delays in the completion of one software release in a
major multi-release project for a non-US telecommunications system project
during the fourth quarter of 1996, and the client's subsequent suspension, in
early 1997, of another software release, also contributed to the Company's
reduced profit margin for the first half of 1997. There continue to be
significant uncertainties relating to this project.
The Company faces continuing risks in the area of project delivery and
staffing. AMS has established a reputation in the marketplace of being a firm
which delivers on time and in accordance with specifications regardless of the
complexity of the application and the technology. The Company's customers
often have a great deal at stake in being able to meet market and regulatory
demands, and demand very ambitious terms and delivery schedules. In order to
meet its contractual commitments, AMS must continue to be able to successfully
recruit, train, and assimilate large numbers of entry-level and experienced
employees annually, as well as to provide sufficient senior managerial
experience on engagements, especially on large, complex projects. Moreover,
this staff must be re-deployed on projects throughout North America, Europe,
and other locations.
There is also the risk of successfully managing large projects and the
risk of a material impact on results because of the unanticipated delay,
suspension, renegotiation or cancellation of a large project. Any such
development in a project could result in a drop in revenues or profits, the
need to relocate staff, a potential dispute with a client regarding money owed,
and a diminution of AMS's reputation. These risks are magnified in the
largest projects and markets simply because of their size. The Company's
business is characterized by large contracts producing high percentages of the
Company's revenues. For example, 34% of the Company's total revenues in 1996
were derived from business with ten clients. Events such as unanticipated
declines in revenues or profits could in turn result in immediate fluctuations
in the trading price and volume of the Company's stock.
Certain other risks, including, but not limited to, the Company's
increasing international scope of operations, are discussed elsewhere in this
Form 10-Q. Because the Company operates in a rapidly changing and highly
competitive market, additional risks not discussed in this Form 10-Q may emerge
from time to time. The Company cannot predict such risks or assess the impact,
if any, such risks may have on its business. Consequently, the Company's
various forward-looking statements, made, or to be made, should not be relied
upon as a prediction of actual results.
11
<PAGE> 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk
NONE.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
NONE.
Item 2. Changes in Securities
NONE.
Item 3. Defaults Upon Senior Securities
NONE.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The regular annual meeting of stockholders of the Company was
held in Fairfax, Virginia on May 9, 1997 for the purposes of electing the board
of directors and voting on the proposal described below.
(b) Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder, and there was no solicitation in opposition to
management's solicitations. All of management's nominees for director were
elected.
(c) Two proposals were submitted to a vote of stockholders as
follows:
(1) The stockholders approved the election of the following
persons as directors of the Company:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Paul A. Brands 32,949,127 68,508
Philip M. Giuntini 32,972,837 44,798
Charles O. Rossotti 32,655,608 362,027
Patrick W. Gross 32,972,380 45,255
Frederic V. Malek 32,808,785 208,850
Frank A. Nicolai 32,971,034 46,601
Daniel J. Altobello 32,973,936 43,699
W. Walker Lewis 32,975,340 42,295
James J. Forese 32,973,936 43,699
Dorothy Leonard 32,965,636 51,999
Alan G. Spoon 32,965,104 52,531
</TABLE>
12
<PAGE> 15
(2) The stockholders approved, with 30,094,416 affirmative votes,
696,827 negative votes, 173,000 abstentions, and 2,053,392 broker non-votes,
the proposal to adopt 1996 amended Stock Option Plan F.
Item 5. Other Information
NONE.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.4 First amendment, dated June 29, 1997, to $100,000,000
Multi-Currency Revolving Credit and Term Loan
Agreement among AMS, subsidiaries of AMS, the bank
lenders party thereto, and Wachovia Bank of Georgia,
N.A. and NationsBank, N.A. as agents, dated December
24, 1996.
(b) Reports on Form 8-K
NONE.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
Date: August 1, 1997 /s/ Philip M. Giuntini
----------------------- ----------------------------------------
Philip M. Giuntini, President
Date: August 1, 1997 /s/ James E. Marshall
----------------------- ----------------------------------------
James E. Marshall, Controller
14
<PAGE> 1
EXHIBIT 10.4
FIRST AMENDMENT TO MULTI-CURRENCY
REVOLVING CREDIT AND TERM LOAN AGREEMENT
This FIRST AMENDMENT TO MULTI-CURRENCY REVOLVING CREDIT AND TERM LOAN
AGREEMENT (the "First Amendment") is made as of June 29, 1997 by and among each
of the Borrowers named herein on the signature pages hereof (individually, a
"Borrower" and collectively, the "Borrowers"), American Management Systems,
Incorporated, as guarantor (the "Guarantor"), each of the lenders named herein
on the signature pages hereof (individually, a "Lender" and collectively, the
"Lenders"), Wachovia Bank, N.A., formerly Wachovia Bank of Georgia, N.A., as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent") and NationsBank, N.A., as documentation agent for the Lenders (in such
capacity, the "Documentation Agent") (each of the Administrative Agent and the
Documentation Agent, an "Agent" or collectively, the "Agents").
The Borrowers, the Guarantor, the Lenders and the Agents are parties
to a Multi-Currency Revolving Credit and Term Loan Agreement dated as of
December 24, 1996 (the "Agreement"); the Borrowers and the Guarantor have
requested that the Lenders and the Agents amend certain provisions of the
Agreement; and the Borrowers, the Guarantor, the Lenders and the Agents desire
to amend the Agreement as herein provided. Capitalized terms used herein and
not defined herein shall have the meanings ascribed to them in the Agreement.
ACCORDINGLY, the Borrowers, the Guarantor, the Lenders and the Agents
agree as follows:
<PAGE> 2
1. APPLICABLE RATE. The definition of "Applicable Rate" in
Section 1.1 of the Agreement shall be amended by substituting the following
matrix for the existing matrix:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Total Debt: EBITDA Eurocurrency Rate Margin Facility Fee LC Fee
(basis points per annum) (basis points per annum) (basis points per annum)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than or equal to 1.0 15 7.5 35.0
- ----------------------------------------------------------------------------------------------------------------------------
Greater than 1.0 but less 22.5 10.0 45.0
than or equal to 1.25
- ----------------------------------------------------------------------------------------------------------------------------
Greater than 1.25 but less than 25.0 15.0 50.0
or equal to 1.50
- ----------------------------------------------------------------------------------------------------------------------------
Greater than 1.50 but less than 32.0 18.0 55.0
or equal to 2.0
- ----------------------------------------------------------------------------------------------------------------------------
Greater than 2.0 40.0 25.0 70.0
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
2. FIXED CHARGE COVERAGE RATIO. Subsection 6.2(b) of the
Agreement shall be amended to read as follows:
(b) Fixed Charge Coverage Ratio: Maintain a ratio of
EBILTDA to Interest and Lease Charges of not less than (i)
2.25 to 1.0 as of June 30, 1997, (ii) 2.30 to 1.0 as of
September 30, 1997 and (iii) 2.50 to 1.0 as of the last day of
each fiscal quarter thereafter, calculated in all cases for
the four fiscal quarters ending on such date.
3. ACKNOWLEDGMENT OF GUARANTOR. The Guarantor reaffirms its
obligations under the Guaranty and consents to this First Amendment.
4. REPRESENTATIONS AND WARRANTIES. Each Borrower represents and
warrants to the Agents and each Lender as follows:
4.1 EXISTENCE. Each of the Borrower and its Subsidiaries
is a corporation or partnership duly organized, validly existing and in good
standing under the Laws of the nation in which it is organized and any
political subdivision thereof, and is duly qualified to do business
2
<PAGE> 3
and in good standing in each other nation and any political subdivision thereof
where the nature or extent of its business activities requires such
qualification, except where the failure to be so qualified and in good standing
could not reasonably be expected to have a Materially Adverse Effect.
4.2 POWER AND AUTHORITY. Each of the Borrower and its
Subsidiaries has all requisite power and authority to own or lease its
properties, conduct its business as now conducted and to execute and deliver
the First Amendment and to perform the Agreement as amended hereby.
4.3 AUTHORIZATION AND ENFORCEABILITY. The execution,
delivery and performance of the First Amendment have been duly authorized by
all necessary corporate or partnership action of each of the Borrower and its
Subsidiaries and require no consent of any Person which has not been obtained,
and the First Amendment constitutes and the Agreement as amended hereby
constitutes valid and binding obligations of each of the Borrower and its
Subsidiaries party thereto, enforceable in accordance with their respective
terms, except as such enforceability may be limited by Debtor Relief Laws and
by general principles of equity.
4.4 NO VIOLATION. The execution, delivery and
performance of the First Amendment does not and will not violate any Borrower's
or any of its Subsidiaries' charter, bylaws, partnership agreement or other
organizational documents, any Laws applicable to such Borrower or any of its
Subsidiaries or any agreement to which such Borrower or any of its Subsidiaries
is a party or by which such Borrower or any of its Subsidiaries is bound,
except for
3
<PAGE> 4
violations of Laws or agreements which could not reasonably be expected to have
a Materially Adverse Effect.
4.5 NO DEFAULT. As of the date of this First Amendment,
no Default Condition or Event of Default has occurred and is continuing under
the Agreement which has not been waived.
5. CONDITIONS PRECEDENT. This First Amendment shall not be
effective until such time as each of the following conditions is satisfied:
5.1 DOCUMENTS. Each of the parties hereto has executed
the First Amendment.
5.2 AMENDMENT FEE. AMS shall have paid to the
Administrative Agent for the account of the Lenders an amendment fee equal to
$60,000.
6. COST OF EXPENSES. AMS shall pay all costs, fees and expenses
of the Agents incident to this First Agreement, including the reasonable fees,
out-of-pocket expenses and other disbursements of Mays & Valentine, L.L.P.,
counsel for the Agents, in connection with this Amendment.
7. REAFFIRMATION. Except as otherwise expressly amended by this
First Amendment, the Agreement is and shall continue to be in full force and
effect in accordance with its terms. The parties hereto further agree that
each reference in any Loan Document to the "Agreement" shall be deemed to refer
to the Agreement as amended by this First Amendment and as it may be amended
from time to time hereafter.
4
<PAGE> 5
8. MISCELLANEOUS.
8.1 GOVERNING LAW. This First Amendment shall be
governed by, and construed and interpreted in accordance with, the laws of the
State of New York.
8.2 NO NOVATION. The transactions described herein do
not constitute, and should not be construed to be, a novation of any
indebtedness outstanding under the Agreement.
8.3 WAIVER. Any waiver of a provision of a Loan Document
accomplished by this First Amendment shall be effective only in the specific
instance for which it is granted, shall not constitute a waiver of any other
provison of a Loan Document and shall not constitute an undertaking or
agreement to waive any provision of a Loan Document in the future.
8.4 SUCCESSORS AND ASSIGNS. This First Amendment shall
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns.
8.5 INVALIDITY. If any provision of this First Amendment
shall be held invalid by any court of competent jurisdiction, such holding
shall not invalidate any other provision hereof.
8.6 COUNTERPARTS. This First Amendment may be executed
in several counterparts, each of which shall be an original and all of which
together shall constitute but one and the same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, each Borrower, the Guarantor, the Administrative
Agent, the Documentation Agent and each Lender have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
AMERICAN MANAGEMENT
SYSTEMS, INCORPORATED,
as Borrower and Guarantor
BY: /s/ FRANK A. NICOLAI
------------------------------------
NAME: Frank A. Nicolai
----------------------------------
TITLE: Secretary and Treasurer
---------------------------------
AMS MANAGEMENT SYSTEMS
DEUTSCHLAND GMBH,
as Borrower
BY: /s/ FRANK A. NICOLAI
------------------------------------
NAME: Frank A. Nicolai
----------------------------------
TITLE: Director
---------------------------------
6
<PAGE> 7
AMS MANAGEMENT SYSTEMS
EUROPE S.A./N.V.,
as Borrower
BY: /s/ FRANK A. NICOLAI
------------------------------------
NAME: Frank A. Nicolai
----------------------------------
TITLE: Director
---------------------------------
AMS MANAGEMENT SYSTEMS U.K. LTD.,
as Borrower
BY: /s/ FRANK A. NICOLAI
------------------------------------
NAME: Frank A. Nicolai
----------------------------------
TITLE: Director
---------------------------------
AMS MANAGEMENT SYSTEMS CANADA
INC.,
as Borrower
BY: /s/ FRANK A. NICOLAI
------------------------------------
NAME: Frank A. Nicolai
----------------------------------
TITLE: Director
---------------------------------
7
<PAGE> 8
AMS MANAGEMENT SYSTEMS
NETHERLANDS, B.V,
as Borrower
BY: /s/ FRANK A. NICOLAI
------------------------------------
NAME: Frank A. Nicolai
----------------------------------
TITLE: Director
---------------------------------
NORDIC BUSINESS MANAGEMENT
SYSTEMS AB,
as Borrower
BY: /s/ FRANK A. NICOLAI
------------------------------------
NAME: Frank A. Nicolai
----------------------------------
TITLE: Director
---------------------------------
AMS MANAGEMENT SYSTEMS
AUSTRALIA PTY. LIMITED
as Borrower
BY: /s/ FRANK A. NICOLAI
------------------------------------
NAME: Frank A. Nicolai
----------------------------------
TITLE: Director
---------------------------------
8
<PAGE> 9
AMS MANAGEMENT SYSTEMS
(SWITZERLAND) AG
as Borrower
BY: /s/ FRANK A. NICOLAI
------------------------------------
NAME: Frank A. Nicolai
----------------------------------
TITLE: Authorized Signatory
---------------------------------
AMS MANAGEMENT SYSTEMS ITALIA
S.P.A.
as Borrower
BY: /s/ FRANK A. NICOLAI
------------------------------------
NAME: Frank A. Nicolai
----------------------------------
TITLE: Director
---------------------------------
AMS MANAGEMENT SYSTEMS
ESPANA, S.A.
as Borrower
BY: /s/ FRANK A. NICOLAI
------------------------------------
NAME: Frank A. Nicolai
----------------------------------
TITLE: Director
---------------------------------
9
<PAGE> 10
COMMONWEALTH OF VIRGINIA
City/County of Fairfax
The foregoing instrument was acknowledged before me in my jurisdiction
aforesaid this 11th day July, 1997 by Frank A. Nicolai, who is Director of
AMS Management Systems Espana, S.A., for and on behalf of the corporation.
/s/ JOSEPHINE METRESS
--------------------------------------
Notary Public
My commission expires: March 31, 2001
------------------
10
<PAGE> 11
WACHOVIA BANK, N.A., formerly
Wachovia Bank of North Carolina, N.A.
By: /s/ WRAY C. BROUGHTON
------------------------------------
Its: Vice President
-----------------------------------
NATIONSBANK, N.A.
By: /s/ ELIZABETH S. DUFF
------------------------------------
Its: Elizabeth S. Duff
-----------------------------------
Vice President
COMMERZBANK AG,
NEW YORK BRANCH
By: /s/ PETER T. DOYLE By: /s/ ROBERT J. DONOHUE
------------------------ ------------------------------------------
Its: PETER T. DOYLE Its: Robert J Donohue
----------------------- ------------------------------------------
ASSISTANT TREASURER Vice President
NATIONSBANK, N.A.,
as Documentation Agent
By: /s/ ELIZABETH S. DUFF
------------------------------------
Its: Elizabeth S. Duff
-----------------------------------
Vice President
WACHOVIA BANK, N.A., formerly
Wachovia Bank of Georgia, N.A., as
Administrative Agent
By: /s/ ELIZABETH A. DREILING
------------------------------------
Its: Elizabeth A. Dreiling
-----------------------------------
ASSISTANT VICE PRESIDENT
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 38,200
<SECURITIES> 0
<RECEIVABLES> 257,200
<ALLOWANCES> 8,000
<INVENTORY> 0
<CURRENT-ASSETS> 304,200
<PP&E> 98,300
<DEPRECIATION> (51,100)
<TOTAL-ASSETS> 419,400
<CURRENT-LIABILITIES> 156,500
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 216,900
<TOTAL-LIABILITY-AND-EQUITY> 419,400
<SALES> 417,200
<TOTAL-REVENUES> 417,200
<CGS> 242,800
<TOTAL-COSTS> 392,500
<OTHER-EXPENSES> 1,600
<LOSS-PROVISION> 2,600
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> 23,100
<INCOME-TAX> 9,500
<INCOME-CONTINUING> 13,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,600
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
